Reverse Common Ratio Effect
The results of a new experimental study reveal highly systematic violations of expected utility theory. The pattern of these violations is exactly the opposite of the classical common ratio effect discovered by Allais (1953). Two recent decision theoriesï¿½ stochastic expected utility theory (Blavatskyy, 2007) and perceived relative argument model (Loomes, 2008)ï¿½predicted the existence of a reverse common ratio effect. However, these theories can rationalize only one part of the new experimental data reported in this paper. The other part appears to be neither predicted by existing theories nor documented in the existing empirical studies.
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Levine's Working Paper Archive
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